Financial Institute CFA Level I Chartered Analyst® CFA Level 1 Dumps in PDF

Free Financial CFA Level 1 Real Questions (page: 45)

The ________ of portfolio performance over time is a measure of the variability or dispersion of the historical returns around their central tendency or mean return.

  1. variance
  2. standard deviation
  3. mean variance
  4. mode

Answer(s): B

Explanation:

Standard deviation is also a useful measure of the relative volatility of fund categories.



________ accounting is mandatory for fixed-income securities.

  1. Flexible
  2. Risky
  3. Total
  4. Equal
  5. Accrual

Answer(s): E

Explanation:

Accrual accounting must be used for fixed-income securities and all other securities that accrue income.
Accrued income must be included in the market value calculation of the denominator and numerator.



Bronson provides investment advice to the board of trustees of a private university endowment fund. The trustees have provided Bronson with the fund's financial information, including planned expenditures. Bronson receives a phone call on Friday afternoon from Murdock, a prominent alumnus, requesting that Bronson fax him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information that day to close the deal and cannot contact any of the trustees. Based on AIMR Standards, Bronson should:

  1. send Murdock the information because it is not material nonpublic information.
  2. not send Murdock the information to preserve confidentiality.
  3. send Murdock the information, provided Bronson promptly notifies the trustees.
  4. send Murdock the information because disclosure would benefit the client.

Answer(s): B

Explanation:

This question deals with Standard IV (B.1), Fiduciary Duties and Standard IV (B.5), Preservation of Confidentiality. Bronson owes a fiduciary duty to the fund trustees. He cannot disclose confidential financial information to anyone without the permission of the fund, regardless of whether the disclosure may benefit the fund. The fund must be notified and permission obtained before the information is publicized. Even if the information were nonmaterial, the member cannot disclose it because it is confidential.



Taxes must be recognized

  1. in the same period as when the taxable event occurred.
  2. on a quarterly basis.
  3. in the period immediately following the period in which the taxable event occurred.
  4. on a yearly basis.

Answer(s): A

Explanation:

Taxes must be recognized in the same period as when the taxable event occurred. This is a requirement for calculation of returns.



Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by $1.50 a share during the next year. He realized that this increase is contingent on pending legislation that would, if enacted, give Walkton a substantial tax break. The U.S. representative for Walkton's home district has told Scott that, although he is lobbying hard for the bill and prospects for passage look good, Congress's concern over the federal deficit could cause the tax bill to be voted down. Walkton has not made any statements regarding a change in dividend policy. Scott writes in his research report, "We expect Walkton's stock price to rise by at least $8.00 a share by the end of the year. Because the dividend will increase by $1.50 a share, the stock price gain will be fueled, in large part, by the increase in the dividend. Investors buying the stock at the current time should expect to realize a total return of at least 15 percent on the stock." Which of the following is/are true?

  1. Scott violated the Standards because he used material inside information.
    II. Scott violated the Standards because he failed to separate opinion from fact.
    III. Scott did not violate the Standards.
  2. I and II only.
  3. II only.
  4. I only.
  5. III only.

Answer(s): B

Explanation:

This question relates to Standard IV (A.2), Research Reports. Scott issued a research report stating that the stock price of Walkton is expected to rise to $8 a share "because the dividend will increase by $1.50 a share." Yet, he made this assertion fully aware the dividend will increase only if Congress enacts certain legislation, which is an uncertain prospect. By stating that the dividend will increase, Scott failed to separate fact from opinion. The information on the passing of legislation is not material inside information because it does not come from or pertain to company operations.



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